As a result of the Budget Law, as from 1 January 2016, the only general criterion for the application of Italy's Controlled Foreign Companies ("CFC") rules will be the low level of corporate taxation of the CFC in its country of residence. A rate of 50% lower than the Italian corporate tax rate (which is 27.5% for 2016 and will be 24% for 2017 onwards) is considered as a low level of taxation, both for general and special regime. This will mean that the CFC provisions will continue to apply as they stand to all jurisdictions who meet the low level of taxation criteria, but there will be no listing of these jurisdictions. The Italian authorities are informing the EU Commission of these changes and this should mean that Italy is not included among the Member States that are said to have a 'blacklist'.
The Italian Government had previously maintained a formal blacklist identifying certain countries that do not provide adequate fiscal or financial information on companies that are resident and doing business in those jurisdictions. Italy has over the years listed dozens of blacklisted countries. A significant limitation of being included on the blacklist had been that costs and expenses paid to residents of blacklist countries were non-deductible or, since 2015, deductible but with certain limitations. In addition to the Italian blacklist rules, Italy also taxed income earned by Italian-owned subsidiaries in blacklisted countries or in low-tax countries (so-called CFCs). Moreover, residents of blacklisted countries were ineligible for certain Italian tax regimes, such as the reduced withholding on the receipt of interest from the Italian government or listed companies or of proceeds from certain other notes; such benefits were limited to countries listed on a separate whitelist.
During the second half of 2015, the Italian Government ratified a number of Tax Information Exchange Agreements ("TIEAs"), including with Guernsey and Jersey (both entered into force on 30 June 2015). Following these developments, the governments of Guernsey and Jersey made formal representations to the Italian Authorities expressing the view that, given the level of cooperation attained in the exchange of tax information, both upon request and automatically, there is no longer justification for their not being included on the Italian whitelist. In November 2015, the Italian Government approved Legislative Decree No. 147 ("Decree promoting growth and internationalization"). The changes introduced by this decree include the rewriting of Legislative Decree No. 239 of 1996 (which sets the rules for taxation of interest from bonds and similar notes issued by Italian issuers). Following these changes, an exemption from the Italian withholding tax was extended to "countries contained in the whitelist that allow an adequate exchange of information" with the Italian Tax Authorities. The whitelist is to be updated every six months by Ministerial Decree, so as to include all the (new) countries that from time to time meet the requirements and that are therefore to be considered as whitelisted.
For Jersey and Guernsey, the abolition of the 'blacklists' on the deductibility of costs and CFCs means that they will not be listed on any Italian 'blacklist' from 1 January 2016. These changes will remove significant limitations of doing business and, taken together with the Italian Government’s 2015 TIEAs signed with Guernsey and Jersey, should soon make Guernsey and Jersey eligible for Italy’s "whitelist" and the favourable tax rules governing the treatment of interest received from government bonds and listed companies. However, in order to be legally considered whitelisted for purposes of Italian Tax Law, a country’s formal inclusion in the whitelist is required and, to this end, a specific Italian regulation must first be enacted. This has not yet occurred. It is therefore not possible to predict whether, or when, Guernsey and Jersey will actually become whitelisted for purposes of Italian Tax Law.
If you would like to discuss outsourcing to the Aztec Group or are considering migrating a fund or SPV, please contact James Duffield, our Head of Business Development on +44 20 3818 0250.
Aztec Group Guernsey
Aztec Financial Services (Guernsey) Limited
PO Box 656, East Wing, Trafalgar Court
Les Banques, St Peter Port, Guernsey, GY1 3PP
Telephone: +44 1481 749700
Facsimile: +44 1481 749749
Video Conference: +44 1481 725947
Aztec Group Jersey
Aztec Financial Services (Jersey) Limited
Aztec Group House, PO Box 730
11-15 Seaton Place, St Helier, Jersey, JE4 0QH
Telephone: +44 1534 833000
Facsimile: +44 1534 833033
Video Conference: +44 1534 832002
Aztec Group UK - London
Aztec Financial Services (UK) Limited
2 Throgmorton Avenue
Telephone: +44 20 3818 0250
Aztec Group Luxembourg
Aztec Financial Services (Luxembourg) S.A.
7, Rue Lou Hemmer, L-1748, Luxembourg – Findel
Grand-Duché de Luxembourg
Telephone:+352 246 160 6000
Facsimile: +352 246 160 6016
Aztec Group The Netherlands
Aztec Financial Services (Netherlands) BV
Spaces Zuidas, Barbara Strozzilaan 201
1083 HN Amsterdam, The Netherlands
Telephone: +31 20 794 4820
Facsimile: +31 20 794 4821
Aztec Group UK - Southampton
Aztec Financial Services (UK) Limited
Forum 3, Solent Business Park
Parkway South, Whiteley, Fareham, PO15 7FH
Telephone: +44 238 202 2300
Facsimile: +44 238 202 2309